Option Once Exercised For A Financial Year May Not Be Withdrawn Midway: Allahabad High Court

The Allahabad High Court has held that an option, once exercised for a financial year, may not be withdrawn midway.

The bench of Justice Saumitra Dayal Singh and Justice Donadi Ramesh has observed that the only recourse that applicant may have taken may be to apply to the jurisdictional authority to discontinue the benefit of the compounding scheme from the beginning of the next financial year, i.e., 1.4.1998. For the option to be exercised, the applicant ought to have made that application before the date i.e. 1.4.1998, and in any case before making the deposit of the compounding fee for the month of April, 1998. Having done otherwise, the applicant lost the opportunity to withdraw from the compounding scheme for the financial year 1998–99.

The applicant or assessee has challenged the original order of the Customs, Excise, and Gold (Control) Appellate Tribunal. The Tribunal dismissed the appeal filed by the present applicant and thus rejected the claim that the applicant was entitled to pay Central Excise duty under Section 3A(4) of the Central Excise Act, 1944.

The Parliament introduced Section 3A of the Central Excise Act, 1944, by notifying the Finance Act, 1997. Section 3A relates to the power of the Central Government to charge excise duty on the basis of capacity of production with respect to notified goods.

The Central Government introduced Rule 96ZO(3) of the Central Excise Rules, 1944, by Notification No. 44/97, dated 30.8.1997 w.e.f. 1.9.997. Rule 96ZO(3) states that if a manufacturer having a total furnace capacity of 3 metric tons installed in his factory so desires, he may, from September 1997 to March 1998 or any other financial year, pay a sum of Rs. 5 lakhs per month in two equal instalments, the first instalment latest by the 15th day of each month and the second instalment latest by the last day of each month, and the amounts so paid shall be deemed to be full and final discharge of his duty liability, subject to the condition that the manufacturer shall not avail of the benefit.

The applicant or assessee opted under Rule 96ZO(3). It paid the compounded central excise duty accordingly for the period 1.9.1997 to 31.3.1998.

At the beginning of the next financial year, 1998–99, the petitioner did not make any fresh application to either remain or continue under the scheme of compounding in terms of Rule 96ZO(3) of the Rules, nor did it make any application to withdraw from that scheme. In fact, the petitioner made no application in that regard until June 1998. For the first time, on 15.6.1998, the applicant wrote to the jurisdictional authority expressing its intent to pay duty on actual production basis. It paid duty in terms of Rule 96ZO(3) of the Rules for the month of April 1998.

The applicant contended that the option to pay excise duty on a compound basis had to be exercised for every financial year. Merely because the applicant had made that application for part of the financial year 1997–98, the option exercised could not be applied against the applicant's wishes for the financial year 1998–1999. In absence of any declaration made by the applicant for the next Financial Year 1998-1999, and in absence of any option exercised in that regard, the conclusion drawn by the revenue authorities as confirmed by the Tribunal, is wholly unfounded. The optional procedure to levy excise duty could not be extended beyond the option exercised by the applicant.

The department contended that an option once exercised in a financial year could not be withdrawn. Thus, in the first place, the option exercised by the applicant for the financial year 1997–98 could not have been withdrawn before 31.3.1998. Since the applicant did not make any application to withdraw from the compounding scheme under Rule 96ZO(3) of the Rules, the applicant continued under the said scheme in terms of the declaration made under Rule 96ZO(3) of the Rules. The applicant treated itself as being under the benefit of the compounding scheme. Having deposited the compounding fee for the month of April 1998, the applicant clearly indicated to the revenue authorities that he would remain under the said scheme for the financial year 1998–99 as well. Having thus indicated to the revenue authorities its intent to remain under the compounding scheme and having paid the compounding duty for the month of April 1998, it never became open to the applicant to withdraw from that scheme in the middle of the financial year. The application moved by the applicant to be charged to duty on an actual production basis, on 15.6.1998, was rightly rejected in terms of Rule 96ZO(3) of the Rules.

The court has held that as to the mode in which the applicant may ever have applied to discontinue the benefit of the compounding scheme, Rule 96ZO(3) leaves no doubt that a declaration was required to be filled by the applicant to be admitted to the benefit of the compounding scheme. It must have been filled at the relevant time, i.e., August 1998, in terms of the provision.

The court dismissed the application and answered in favor of the department and against the assessee.

Counsel For Applicant: A.P.Mathur

Counsel For Respondent: Parv Agarwal

Case Title: M/S.Raman Ispat Pvt. Ltd. Versus Cce Meerut

Case No.: Central Excise Reference No. - 7 Of 2011

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